UFPI - Earnings call transcript Q4 2017

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Operator

Welcome to the Universal Forest Products Incorporated Fourth Quarter 2017 Conference Call. Hosting the call today are CEO, Matt Missad; and CFO, Mike Cole. Matt and Mike will offer prepared remarks, and then we'll open the call up for questions. This conference call is available simultaneously and in its entirety to all interested investors and news media through a webcast at www.ufpi.com. A replay will also be available at that website through March 25, 2018.

the call yesterday's Matt presentation press statements defined the remind let include turn Reform as that Litigation you release in I over XXXX. Missad, to me forward-looking Act Before of Securities Private and today's to the These from that could differ expectations and projections. and cause statements risks uncertainties results actual are to subject company's materially These factors with press the in filings identified the risks and release and Commission. uncertainties include but are in not limited to Exchange Securities those and turn the this over I time, like to At Missad. Matt call would to

Matthew Missad

Thank the and it and and was it, is good breaking by conference our you you, which morning, Liz, both earn owned XXXX everyone. time year-end own records for appreciate it. We the call. profits. to Leo, it, taking year And of to sales our listen learn definitely XXXX team

call, did discussed well company XXXX. continued position we last As too. on that also And needed to success our we growth in they and for quarter's

quick of new a $XXX and members Just were record some a for the would Again, $X.XX the for all year. per like $X.XX the thank also for for record the the all quarter records. Earnings these companies a family share record the for million billion quarter highlights. Sales were and stock-split I during to UFP making year, $X.XX our for QX. of adjusted

part wake have basis received much of higher We cost Gross And freight, did due lower federal of We in the law, which our and to we customers end were to lumber from tax we these sure of income Mike incurred victims. margins to make increased which about margins product our margin face the additional we hurricanes as line on course, the large on new to significantly at in help possible commitment and pricing help cost a the down the market, hurricane had of more to hurricane-related describe the that in Of materials. the XX in XXXX, talked sales hold headwinds QX. the handling hurricanes, detail. to from little will points honored related as some freight sourcing disasters.

Our worldwide products the facilities impacted times up hurricane the to regions many to the outside from source us geographies our ability enabled and SKUs. at volumes some unit prior support to ship X on year's

new the $XXX.X While in short-term, scorecard, well do wrap XXXX is in million. we of right it To with our term. this the the is impact sales thing it believe painful up will product serve long and to finished we us

we We in $XX new, products, are will million new to which sunsetting but no continue longer sell. consider

XXXX. So And get limiter and today questions for buyers' is are affect Lack house? in to has lumber near Can goal skilled for great market. perspective. new Are nowhere labor very the have as market peak high biggest the sustainable? Since plans I'd set offer The ability macro climbing? potential demand is like prices buy to but to market XXXX to level These keep a can mid-XXXX's appears going a I high record repair in is overbuilding. now a regarding these when so of that robust. served million afford are the and $XXX starts our we Housing still only remodel and strong. they my sure, of still is what is history, for on happens sales. high product focus question what on XXXX, The the a

increased months. over of a in last too. forecasts. products in QX, current in production production the the mills or increased new price on will the side, U.S. QX, mills dimension QX based have are QX mill to several the There duty late more and Canadian the benefiting On modest resulted in in panel XX% see the from both issue, difference in has increase is will Dimension supply lumber which and between XX% while lumber OSB

the announced addition, Georgia-Pacific come States, Southeast over United supply In lumber in the supply pricing. Canfor more levels, its years. appears the justified will solid which market mills in both indicates that and online recently With next existing new few current in demand

lumber Of slow more protect well. doesn't market market course, raising demand to impact the external be bond somewhat fed rates in forces which such decides would long-term and as if the aggressive would interest the as

try higher been time we with business prices are by shows also with to market decline lagged in market strong we may is QX, industrial remodel the caused XXXX been lumber the far things year independent And they ahead have market addition our recognize and have excuses which adding customers, growth, we the predicted sales are adjustments to and to by in speaking a thus to as looking that cost control. Manufactured as as continue versus to the result lumber increases can't share steady or site-built regarding repair conditions uncertainty retailers impact agreements for showed allow. market, growth, in seeing tax we as and with The strong. retail make the gains the solid well the waste market to construction, And time. we in pending have much while slight in signs year. not about retailers. difficult more its some housing at prior our pricing have of big-box which also to looks continue retail added activity However, optimistic market and as The demand in the legislation be could of

and product. we are product So sales having profitability. our with product designers in to sales contractors, contractor-friendly talked offering, specifying XXXX and about are extremely Deckorators products good expanding are new We and concentrating better installing enhance We services success but and growth, new sales target, where on and are we our mix focused? our Vault

plastic advantage as find contractors also for easier and marketplace, expanded We've install. it order. in of to the similarly stronger special definite since products via a easily composite Vault Inside designer-specified by sized products, unique and Wood, color. are have Charred much obtained accents opportunities with the lighter installers and such ash introducing UFP-Edge to and certified Deckorators is These Our design wood more work the Home colors create than our

gives us timely advantage and In are we utilize more options enable and customization the marketplace. more addition, to The consumers manufacturing provide we products. distribution and to customized a market Deckorators in which better facilities, excited basis for gives products, on mass to ability an all gain local us semi-customized which new expect more products about aluminum anodized multiple us railing our our help share. These branded

international our On front, grow. continue the to operations

small existing We have Australia, tuck-in countries. added those and which acquisitions complement in in our Mexico operations

our continues to need well. international Our cross-selling multinational with grow customers, footprint as we

We goal our are progress the steady our to global become making provider packaging on solutions products. for

idX. regarding wondered progress about expect of idX. questions Many We also the investors have some

we While, considerably short for original sales. XXXX, $XXX felt posted targets of we still in the million

in completed We and which once are we this implemented, targeting synergies, be projects year. sales million the plan aggressively realized the is identified fully facility costs, and million already will With for pursued XXXX consolidation in we pre-acquisition. have estimated eliminated annual $XXX $X have

realize We later also believe XXXX. in more to are savings there

capital, see remain And will and and its the in XXXX. opportunities. and In will customer the well selective in idX our we of our generate It addition impact other the Multiples we interest capital XXXX in as seek markets. a little investment and of confident rising changes make to to opinion, in to on base substantial on valuations. a we will approach. Through rates tax cost team end so interesting the law continues our frothy, expand savings, remain of diversify continue to the of the improvement return in profit acquisition have be efficiencies lower cost gotten operating as conservative idX excess that to working levels

mortar resources our scalable our Therefore, We more to brick and our are choice through product We product or meet to sell through to become We which markets efforts our developers, plan make to need of at both products look their adds the grow e-commerce customers customers' new these to markets. current partner channels. needs. their late-stage adding opportunities. access new for looking to end our we're targets, e-commerce who which and robust outlets

help We ability solutions us complete broaden with targets, which our packaging to alternative also offer more materials. seek will

at personnel recruitment look and critical. we retention As challenges, is

digital We place attractive have in and a we make state-of-the-art the investing training environment more are the in expand automation to program, which continue we a to environment to production work.

invest more to operations XX%, will the and to one-time and to comprehensive will benefits the and which compensation improve enhance side, we tax our options, turn efficiency our we excessive of the our benefits one-third by On in to time. in are individual savings through believe employees for over and of of employee. which that program will tailored us benefits Instead be expect compensation reduce federal use help bonuses, retention compensation

the the of remaining tax We which for expect two-thirds to savings value. also shareholder will enhance use investments,

Another our Rail of due weather, fleet are reduces freight driver challenge currently with internal the cold outside truck locomotive. transportation in trying best primarily use regulations for which we continue the amount carriers struggling Canada, is and rise, shortages, new DOT of make to to cost to the and carriers. are also the

costs. Finally, we limiting continue work SG&A our at

unit the in design below testing, in Excluding SG&A line. sales We new included manufacturing are in e-commerce products, SG&A the investments rate. rate keep and to growth which all our innovations and plan growth

to over Cole to performance. Now other I'd the to call on provide financial Mike our like turn details

Michael Cole

Thanks.

reviewing prices of quarter. financials, this touch Before on lumber briefly the the I impact should

prices were a overall sequentially prices. increased a as result up spruce higher XX% and X% the quarter year-over-year lumber was up approximately in of QX. of significantly quarter, as prices in significantly the fourth higher in spruce Specifically, - fourth Spruce result XX% year-over-year

Southern prices X% year-over-year up sequentially. and up yellow X% were pine

future with product products lumber selling reach our the rising to also can formula price fall sell a reprice expose and prices for point might prices until risk fixed along you during treated lumber the a event products a we customers Higher variable sold in lumber with those price our we cost a lumber, prices As like us present primary to products season. on gross increase. challenge when pass recall, certain we

last You might situation we experience through the from June. year April recall was this

quarter Finally, our profit earn as higher attempt look sales costs, to to it's quantify cost stated as our gross one best pass generally to periods per distorted profits, we along results to for ratios in the targeted and higher lumber In for this, prices a release, which and SG&A as sales. tried temporarily cost profit unit we of percentage less and to press customers with you. unit. commodity our a caused operating changes of included the in week, in compare a like change full-year Also operating and we profits

highlights Moving our statement. from income on to the

lumber the X% increased sales the for prices to quarter sales unit resulting an selling overall X% XX%, Our in and from market. increase increase due in

by of an unit Adjusting week unit XX% is driven caused in higher that X% each loss a to consisted But low The Matt to to estimate profitability. our for as Sales completed sales of X%. product, The our lack we fourth this due quarter quarter sales week our a extra growth organic recent reporting this pointed this growth. XX%, quarters resulting XX% the the little and sales X% the year-over-year estimate XXXX. out, hurricanes. about sales prices previous XXXX, increase was Our to reporting this of Breaking of unit which market We XX%, longer our earlier decline increased of acquisition the contributed impacted year market. the was period commodity Robbins margin organic extra completed markets. recently of in year in the of sold to acquisitions. increase our from was products contributed selling end growth retail similarly increased QX to primarily than in by down and due unit

driven efforts existing X%, our in to selling continue Our sales QX was an a market and XXXX growth unit of traction. customers as X% adding about X%, of to the unit Organic industrial reporting improve gain was in locations driven almost and adding in customers X%. increased sales prices market adjusting period to for by increase the by increase share and XX XXX longer new

unit construction sales the construction. contributions Again XX% growth increased for adjusting with for residential the market X%, to Our extra in and about organic manufactured the reporting was housing, similar selling overall for commercial increase year, week prices. due last

as of SG&A strong income accrued flat cause and income million bonus The $XX by quarter offset statement, the fourth compared over our while core challenges $X which last labor Continuing is in gross almost a week acquired Overall, increased SG&A our variety sales rates with extra in expenses lumber almost increase or leveraging X% of to increase than factors we're less million sales, expenses statement, with million increases decrease. down Moving to remaining rising totaled manage the in compared which SG&A were continue fixed was and costs reporting line expenses. businesses freight QX in by to pleased prices, of move sales almost including compared a X%, our impacted $XX by unit our we expense, SG&A, and X% year. profit an with down associated to included XXXX in increase last was million our cost. growth the carefully year, in $XX caused report to unit which to our as

by nearly businesses see or grow XX% very XXXX. million unit Operating SG&A $X.X XX.X% we're $XX EBITDA our fourth contributed expense million the we increased of acquired and profits million. Looking quarter excess Likewise bonus about $X over almost to rate to as the in for million by for a forward, growth. or this EBITDA pleased quarter. are quarterly quarter of to $X increased comparable our profit $XX.X sales planning Overall, million well almost for currently to core

rate the XX.X% net to this last tax our year, to due the law on primarily liability. tax compared change quarter was impact of deferred effective Our XX.X% tax

tax the been have effective Excluding million would impact, rate $X.X our XX.X%.

to forward rate XXXX, planning are for of XX%. approximately currently overall effective Looking tax we an

net Finally, of were last a million, XX% interest controlling compared million earnings increase to earnings our year. from $XX.X $XX.X

$XX.X net million, to million dropping on line. increase XX% the the been Excluding benefit, sales would earnings last operating have leverage over a tax demonstrating year, our $X.X bottom

of the comprised non-cash statements of and operating to $XXX in with higher cash lumber year capital Moving nearly cash to working offset for earnings prices. for flow due since year million, by last flow growth activities substantially business expenses in our net million net cash our $XX end on year, the of $XX our increase the million, of along $XXX it's of from was a million invested the and

cycle working previous As to cash assess capital on mentioned I calls, our measure we management. our

Our last [ph], Investing cash Robbins XX to days two Hardwoods, acquire cycle well transactions and activities million Mexico bolt-on our in expansionary for Capital continue the expenditures as product our geographic days as consisted pursue that of XX quarter spent reach, were enhance to Australia of offering, Pallet] represent fourth acquisitions attractive was million including small year. and CapEx to we expand million. $XX opportunities. the our $XX Quality $XX as for year, compared Manufacturing [Goboard

to for planning activities for continue invest new return expenditures automation as repurchases capabilities $XX our Financing exist products, a of offer our our to in almost almost payback. are we year stock capital a value-added high included including rate opportunities dividends regions totaling increase million. Next semi-annual total and a most XX% and quick $XX $XX million dividend recent million, that of when capacity in in long-term enhance and add good and have opportunities, we growth of

million grow to last to could and in due $XXX As borrowed back compensation In sheet, our to the acquisitions balance to opportunistically continue the and nearly we sheet was buy the issuances. million with compared a add leverage to year, this when to believe million debt sense capital reminder, year. balance we to balance $XXX million, during still and feel offset primarily about million structure. our practice respect our With stock-based $XX strong to Overall, we $XXX to $XX net stock our returned has remain price up makes total, year. our fund million our been comfortable debt to shareholders $XX business, to

somewhat capital to but invested XX.X% average weighted year, our expect cost on we as targets Finally, our capital, acquisitions exceeding investments last year time. and down capital long-term over to certain expenditures this our and from return was return reach

in pant We transaction have and will replacement add I financials, will pretax announced also all we a $XX that be a as in from capacity the Mike. to us sale return enhance This the investment sale $X That's this in capacity the expect appropriate of use provided Florida in the million efficient. Thank on of you, manner million and Medley, with Matt. our us proceeds January. more year, future gain we earlier our allow existing recorded

I'd up Now, you any open may to like it have. questions for

Operator

comes line Our Capital [Operator Markets. question Ketan of Mamtora Instructions] first from BMO the with

now is line Your open.

Ketan Mamtora

Mike. Matt, morning, Good

Matthew Missad

Good How morning, Ketan. are you?

Ketan Mamtora

I'm fine.

first So tax reform at this your question, has view all buy? of recent change on kind changed versus build

Matthew Missad

Yeah, I good think question, that's Ketan. a

is tax the for that us. a the are versus inclined to the too marketplace they terms be which buy driver think build. a what in more I for than If the situation valuations really is about the really generally of valuations a normalize high, issue. appear And build from is we're to valuations. that's If better in bigger option today, us more

Ketan Mamtora

and sense it you of level Got you it can the most then, high category, just in or is most for this it. that buy filling give helpful. at it kind whether whether the us And you? give was That's some up of at hold? is there leased just a what sense the think you category is point, do some opportunity us interesting where Or in to build is

Matthew Missad

Yeah, lot lines whether Ketan, are of say the it's market. I different very with are we a opportunities, heavily, on the that focused still There or would industrial different geographies. product

find our scalable probably that area markets biggest grow. then the new that serve, our opportunities can that's are we product next one new the of any say to be products would I So focus that we and in would trying

Ketan Mamtora

to anything do of January QX, out reset that squeeze it on X contracts That's say you anything kind? expect of QX? or fair can is margin that bigger helpful. And then, turning a mitigate to in markets, whether to it you is would lumber that to Or

Matthew Missad

date tend different they that's so all a for of run agreements, Ketan, so our to specific we Yeah, timeframes. common don't have at

So date agreements, to common a tend at our run for that's different all they specific of so timeframe.

market going compression have to runs So you're until continue we're to as those cost. able right, the you're pass along to

I it's in this to hard run thus X% QX. similar, year. would at think southern the point, in So the something far of although up QX It's I yellow to predict market this terms say, pine approximately on we're

catch-up. little So of playing bit a it's

Ketan Mamtora

reset what products, kind the between is would that it can when vary categories of on typically, you And the different and across and cost the average? contracts? Appreciate lag but

Matthew Missad

some between probably days, it's average, longer, considerably shorter. on say, would and much XX and XX I some obviously,

Ketan Mamtora

question And on it. one Got just idX. last

the figures XXXX? was to Would helpful. able you us well gave very be in contribution EBITDA that sales You give as the

Matthew Missad

No, I sales think that towards kind a can and of would historical give pretty percentages we're like. the what stick the going to you try good idea of to look and numbers use you their

Ketan Mamtora

Got it. over. in I'll very luck XXXX. Good helpful. that's And turn it

Matthew Missad

All right. you, Ketan. Thank

Operator

Our Sidoti of & the question Jacome comes Company. Dan next with from line

Your line now is open.

Daniel Andres Jacome

Hello, good morning.

Matthew Missad

Good morning, Dan.

Michael Cole

Dan. Hey,

Daniel Andres Jacome

Hey.

$XXX targeting let's say can said - that I revenue this you So Did idX, if you're in of versus year million $XXX in million right? on a think base get XXXX. we I

Matthew Missad

Yes.

Daniel Andres Jacome

you Can delta, XX% how think of to to going little it's get a I a on you're exactly seems of just what's Okay. reasonable? more there hear which flavor kind game-plan, because love the that. would But bit I or give little just us pretty

Matthew Missad

lot markets year diversified is are end what end pushed of business. said Sure, markets, and ago some growing. of up what The we're picking yeah, seeing And then, about picking that our overall I up. business are think their backlogs with we what newer is back they're we're the got new now a seeing a is

year apparel all did pick year to up the and focused on So category, markets money end more spend that I typical going too. new they're to the last than this starting they they're retail are think

customer number. backlog they're - and arriving on how visibility the their million their based with that's the So $XXX based base, at on

Daniel Andres Jacome

Okay.

because the a So were you a that? timing depressed now little was little are - from there bit - saying and should there was recover bit of results the they

Matthew Missad

and own so… Yeah, to talking year people capacity, from rationalize their trying a store as recall you closures ago, about were may

Daniel Andres Jacome

to still in remember, your look I - Then I wanted a a - no, lot a on road, maybe looks further that's - there. back Florida, invested Right, probably do you okay, for that or Just for would of room curious footprint and positive? you yeah, at encouraging. opportunities Do one-off you mistaken, remember, see the anything manufacturing own it this down be facilities. a return because capital like you standpoint

Matthew Missad

begin ROI a to lot extent I easy to was be be to be with. the facility, serve very, use able this that said, operating And which Yeah, one that Mike don't well. like view we are business model But our able even that think manage to efficient a very as we others very downsize the that build facility, much cost there. the the create believe a there compelling I still local or lower we'll we'll market to of and have of will more that, so

Daniel Andres Jacome

seeing release. have remember I Medley idea? press other the one? in to are yeah, rough facilities a the you the close that Like How Right, do

Matthew Missad

of… terms In

Daniel Andres Jacome

The nearby of close production that nearby, facilities, how they? yeah, where facilities you're the are going to to roll over some

Matthew Missad

facilities that have have Central market, we Miami facilities we will Yeah, so… in and also Florida, within

Daniel Andres Jacome

hurricane, the mistaken, headwind headwind. and on some then, cost, And Good. sourcing you said there was if temporary I'm maybe Okay. - not

go Or kind can business So is of know, going not don't going you any doing this learnings maybe like like this let's the are from away. something blip down short-term, mitigate happening again? just Did this there? that I it, of forward, up pick cost call hurricanes to

Matthew Missad

Yeah.

right. of is I customer, and about happen. to little the we need Hurricanes think case, that issue. learn going we in make we And do try short-term something service service every the it. hurricane, the profitability to absolutely our things you're And customer a one sure to we are trumps the this

base customer do there. it and get will much we terms learn manage can can what think, better material expectations from to need we with how quickly and the is how in we of we this, I the will get

Daniel Andres Jacome

going in earlier, your I of it's lease the year, guidance kind proceeds, reinvest, to you're - of the then that, And - it's guess? the there is Okay. just for forgot deck, CapEx some that but I ask to being in roll on forward

Matthew Missad

would would for it Yeah, and the projects to look use replacement country. around think, properties that I we

Daniel Andres Jacome

what have XXXX, internally you're comment some one, when of last then And see guys think Just to in terrific. sort versus care corporate, That's peers? housing start trying growth it. do what to you that? baked at if Okay, you on thinking you about

Matthew Missad

we we're would are probably on the I maybe lower Yeah. rate. with of X% typically growth Dan, at say probably end that spectrum. the

Daniel Andres Jacome

Oh, yeah.

that is Thank right, but Okay, low. All very you fair. much.

Matthew Missad

All right. Thank you.

Operator

Instructions] line comes next Chercover Davidson. from D. Our the [Operator of question with Steve A.

is Your line now open.

Steve Chercover

Good Matt morning, Thanks. and Mike.

Matthew Missad

Steve. morning, Good

Michael Cole

Good morning, Steve.

Steve Chercover

assuming be in to can So that it it? But just maybe mind, of off, my how beneficiaries kick you you guys the most I'm us could you're and I obvious increased forming participate you And infrastructure might as spending. concrete see targeting how tell opportunity.

Matthew Missad

said like That's you better focused can. it, an probably that that's Steve, that, think, I the and big participate to we than we're in see area I area able on. would [ph] being just -

So benefit as any our some will well. of benefit business, forming concrete infrastructure of the other spend, markets construction and we our think, would perhaps

Steve Chercover

sales and deeper, I'm was thought much And state? to trying for would million idX, be steady you can us $XX just recall, to XXXX. achievement but want it around dig good. you generating in - a they help us the on Very right. target gave not All what you've I

Matthew Missad

that years. was a - correct. I was Yeah, That's the couple think from number it of

Steve Chercover

All right.

in - XXXX. better anyhow, of So accretive they'll than achieving kind your or ROI to be

Matthew Missad

Correct.

Steve Chercover

Okay. And them prices, a prices, higher on construction. cited you finally lumber governor that residential the specifically, when lumber on is

detrimental that think on And new prices duties you expect and U.S. mills to help you from that these Canfor do do the the Canadian down? ultimately lumber might economy? drive So, are GP A, actually

Matthew Missad

loaded Steve, of I Well, you're that's I'll try so first question. setting that. to me part up here, tackle a know the

supply, of if in on First, there not to expect guess, expect market, demand. it pricing. increasing would in would the clearly, the is commensurate there more moderation lumber terms and some impact We I the we be

the demand. ultimate respect driving first impact in had for that's market it conclusions too impact had I your an would the to with one. to draw of is an I duties Canadian is hard hasn't market there, be on guess, high but So the to question easy of costs. and me what the the can terms do And that it's the lumber it up And relative does say to impact. what's think own you how the high in consumer that I definitely the guess,

Steve Chercover

it's Well, Yeah. clearly affordability, if policy - levels, But a actually impacting housing seem mean, it XXXX. I'm objective the housing to extent I negative. it knows agent, Best there's a guys. Well, doesn't right. seems that. double All wishes for - activity like everyone is and thanks

Matthew Missad

Thank appreciate it. you, Steve,

Operator

Ketan a have We follow-up the from line question of Mamtora.

line now Your open. is

Ketan Mamtora

Thank couple be cash but tax what to sorry any of rate this, ones, would I be if and missed you. XXXX? a or Mike, your your just quick effective taxes differences? would it in Would be similar there

Michael Cole

very would be It similar.

Ketan Mamtora

your in on Got cycle? it. change any move then, as And leverage view we through housing the

Michael Cole

with leverage in we're X expect then off, be at No, point, when we EBITDA is demand to But I that. our to think point another at this that. a we view change times to this this comfortable At X.X good on point ratio. of the think cycle, comfortable we debt might still cycle, very

Ketan Mamtora

luck XXXX. Okay. That's very helpful. in Good

Michael Cole

Thank you.

Matthew Missad

Ketan. you, Thank

Operator

turn further call any Missad, the And to to Mr. for like time. back showing I'm any this at remarks. closing I'd not questions

Matthew Missad

I'd also you for on our the I'd wish to of of to our we us committed an a tax again reduction. this like Halloween our you us Liz. get all and investment. thank to driving team call Thank truly helping to a say our performance value increasing company, thank special for believe you, you joining like appreciate that morning. have and of in outstanding your We interest

true. before. Thank wishes and to do one come year than from is Sometimes you have goal our XXXX a XXXX say, greater great ever And now was that day.

Operator

conference. This your a you may you Everyone, have day. participation today's in now gentlemen, And for and disconnect. Ladies thank the concludes great program.

UFP Industries (UFPI) 23 Feb 182017 Q4 Earnings call transcript